BSB follows SRA in backing £500,000 indemnity limit for firms
BSB: keen to avoid “obstacle to smaller entities”
The Bar Standards Board has followed the Solicitors Regulation Authority (SRA) and proposed that the advocacy and litigation firms it hopes to regulate later this year should have indemnity cover of at least £500,000.
The SRA has come under fire from the Law Society, Association of British Insurers, Legal Services Consumer Panel and others for agreeing to cut its minimum compulsory cover limit from £2m to £500,000. The Legal Services Board will have the final say and could still block the move.
However, launching its consultation on entity regulation last week, the BSB said it did not want to set a cover limit that would “overburden the smallest/lowest risk structures”.
The BSB went on: “As a matter of principle, any minimum that avoids imposing excessive burdens on those at the low end of the scale is unlikely to be adequate for those at the other end of the scale.
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“However, the right way to address that issue is for the BSB to ensure that the overriding obligation to hold reasonable insurance cover is understood and observed, rather than imposing a minimum which might represent an obstacle to smaller entities entering the market.
“As the risks associated with the work done by a ‘one person’ entity are likely to be broadly similar to those at the self-employed Bar, we believe that it is appropriate to require the same minimum level of cover per claim as the self-employed Bar.
“This is currently £500,000. That also accords with the SRA’s recent proposals in relation to its own minimum.”
The BSB has also decided that, like the SRA, it needs a statutory power of intervention over entities.
The regulator said this was necessary “to eliminate any residual risk in the event of significant dishonesty, insolvency or abandonment preventing the regulator from taking action to protect clients where something had gone very wrong”.
The BSB said that in parallel with its application to the LSB to become an entity regulator, it should seek their recommendation that the Lord Chancellor grant an order under section 69 of the Legal Services Act giving the Bar Council (via the BSB) a power of intervention.
The regulator said this would be the subject of a second consultation and would not be in place at the start of its new entity regulation regime. In the meantime the regulator proposed Handbook changes to provide alternatives to statutory intervention.
The BSB has followed existing arrangements for solicitors’ firms by requiring run-off cover to last for a minimum period of six years and rejecting a restriction on those who can claim on indemnity policies to individuals, small businesses, smaller charities and trusts.
SRA proposals to cut the run-off period to three years and exclude some claimants have been postponed to next year.
Making clear its ambition to become a “niche regulator”, the BSB said factors indicating that a firm would be suitable to be regulated by it would be that a substantial part of the firm was dedicated to advocacy and/or litigation and at least half the owners and managers had higher court rights of audience.
In contrast, a firm was less likely to be suitable for BSB regulation where it provided a substantial amount of “high-volume, standardised legal transactional services direct to lay clients”.
The BSB hopes its application will be approved by September this year, four years after it first started consulting on the subject. A range of models are under consideration by barristers interested in creating entities, from barristers and solicitors working together to chambers converting to corporate vehicles to allow collective ownership.
The BSB is unlikely to start regulating ABSs until next year.
Tags: bar standards board, entity regulation, professional indemnity insurance, Solicitors Regulation Authority
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